Correlation Between General Dynamics and Safran SA

Can any of the company-specific risk be diversified away by investing in both General Dynamics and Safran SA at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining General Dynamics and Safran SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Dynamics and Safran SA, you can compare the effects of market volatilities on General Dynamics and Safran SA and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in General Dynamics with a short position of Safran SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Dynamics and Safran SA.

Diversification Opportunities for General Dynamics and Safran SA

0.62

Correlation Coefficient

General Dynamics  Safran SA

Poor diversification

The 3 months correlation between General and Safran is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA and General Dynamics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on General Dynamics are associated (or correlated) with Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of General Dynamics i.e., General Dynamics and Safran SA go up and down completely randomly.

Pair Corralation between General Dynamics and Safran SA

Allowing for the 90-day total investment horizon General Dynamics is expected to under-perform the Safran SA. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 1.2 times less risky than Safran SA. The stock trades about -0.03 of its potential returns per unit of risk. The Safran SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,387  in Safran SA on September 30, 2024 and sell it today you would earn a total of  107.00  from holding Safran SA or generate 1.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

General Dynamics  vs.  Safran SA

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Safran SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safran SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Safran SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with General Dynamics and Safran SA

The main advantage of trading using opposite General Dynamics and Safran SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics position performs unexpectedly, Safran SA can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Safran SA will offset losses from the drop in Safran SA's long position.

The idea behind General Dynamics and Safran SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.